In the 18-month period since agreeing to evaluate a combination of Silver Standard’s Pirquitas mine and Golden Arrow’s Chinchillas Silver project in Argentina, it invested ~US$ 16 M (plus a C$ 2 M option payment) into the Company. Among other things, this capital paid for 24,000 m of drilling, engineering studies and metallurgical test work, culminating in a Pre-Feasibility Study (“PFS”). Overnight, Golden Arrow jumped from explorer to 25% owner of a producing mine and Mill.

Does the Company’s valuation embrace this monumental de-risking event?

I believe there are 3 primary reasons for the under-appreciation of the [Chinchillas / Pirquitas Mine] JV. At first blush, the PFS for a proposed 8-year mine life at the Company’s Chinchillas project with a post-tax NPV of US$ 178 M left investors underwhelmed. 25% of US$ 178 M = US$ 44.5 M = C$ 60 M (equal to about C$0.60/share). Second, the PFS used a fixed, long-term Ag price assumption of US$19.50/oz vs. the current spot price of about US$17.25/oz.

Third, there’s uncertainty as to how management will fund Chinchillas’ estimated US$ 20.25 M capital requirement over the next 18 months (and also be able to fund other important exploration activities, such as at Antofalla; see below). Although not the focus of this article, Golden Arrow controls ~25 other land packages totaling ~214,000 hectares.

Tackling the idea of a funding challenge is not difficult. Once the JV transaction closes the Company will have roughly C$ 27 M = US$ 20 M in cash. On top of that, there’s an additional C$ 7 M from in-the-money options & warrants, plus an estimated C$ 11 M stretching out into mid-2018 from its share of cash flow from processing stockpiles at the Pirquitas mine.

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